Record €4bn plus year for Irish investment market

2014 was the busiest year on record in terms of the Irish investment market with more than €4bn worth of properties due to be sold by year-end. 

When you consider that this figure was only €80m three years ago, this truly is an exceptional turnaround.

What makes the market even more exceptional is the fact that an additional €14bn — €20bn of loans (nominal value) relating to Irish property will also transact. While these are loan sales, some are being bought with a view to gaining control of the underlying assets.

Demand was primarily focused on the Dublin market with close to 93% of all activity taking place there in the first nine months of the year. However, after Dublin, Cork was the next busiest, accounting for almost 5% of sales (based on value) over the period.

Institutions, REITs, private equity funds and private investors from home and abroad were actively seeking opportunities throughout the year. Demand was strong for all types of investment properties across the risk spectrum and at all lot sizes. At the smaller end of the scale, private investors were very active at about €1m — €2m and were seeking to avail of the CGT holiday, which closes at the end of December.

In the Cork market, it is now noticeable that very little stock such as this is left available. As the year progressed, it was evident how the number of bidders on each opportunity started to reduce. Investors became more selective on what properties they were making offers on rather than chasing everything, which had been the trend when there was less stock available for sale.

Following on from 2013, office investments were most in demand in the early part of the year. Sales of interest in Cork included Phase 2, Cork Airport Business Park for approximately €15.1m (pictured above); 1 EastGate Road for close to €8.18m; 6 Lapps Quay for about €4m; 5 East Gate Avenue for €3.2m; Permanent TSB in Cork Airport Business Park for €2.6m; Mathew House in the city for just over €2m; and West Cork Technology Park for €1.44m.

As yields of office opportunities continued to harden (prime yields now down 100 basis points in Cork and 295 basis points in Dublin since mid-2012), greater demand started to focus on the retail sector in the latter part of the year.

Simultaneously, a greater volume of retail assets started to come to the market and provided investors with the opportunity to harness improving economic activity and better consumer sentiment.

The Acorn Portfolio, which contained Blackpool Shopping Centre, was a notable example at about €170m. There was significant interest in the portfolio and was bought by Värde Partners in Q3 for a reported 32% more than the €130m guide price. The Spectrum Portfolio sale (containing Douglas Court Shopping Centre), now making c €160m of €40m over the guide in Q4 is another example of strong interest.

As a result, retail yields continue to compress with prime rates in Cork now at about 7.25%, falling from 8% in mid-2012.

In terms of prices, the IPD indices show that overall Irish commercial values were up by 22% in the first three quarters of the year. This was very much influenced by the office sector, which increased by 27% over the period with retail increasing by 17%.

Full year Lisney figures for the overall market will exceed 30% with the retail sector proving a greater level of contribution to the uplift. Looking to 2015, the purchasers of large portfolios of loans over the past two years are likely to be the key sellers of assets. In overall terms, activity levels are likely to revert to more normal levels.

However, prices will continue to increase, albeit at a reduced, more sustainable pace. Better returns will be available to those who are willing to take on additional leasing risk or are willing to forward-fund prime new developments. Property will continue to be seen as a straightforward alternative to cash on deposit, which is yielding virtually nothing.

Aoife Brennan is a Divisional Director of Lisney